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Minimize the weighted average cost of capital

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The new finance director proposes the issue of new bonds in order to reduce the company's cost of capital. The funds raised will be used to repurchase ordinary shares which the company will then cancel. Due to the repurchases, share price expected to rise and the future dividend growth rate to increase, but the price of the preference shares to fall.

Question: Whether Companies, by integrating a sensible level of gearing into capital structure, can minimize the weighted average cost of capital?

Reference no: EM133114865

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